a) Types of economies

• free market economy

• an economy where resources are allocated according to the laws of supply and demand

• the preferred economy of Adam Smith

• free market

• Adam Smith preferred free market economies because…

• he believed that economies function best when private individuals work in their self-interest

• the preferred economy of Frederich Hayek

• free market

• Frederich Hayek preferred free market economies because…

• he believed that in a command economy…

  • there were information gaps between the people and the state

  • their where differences in what the people needed and what the state believed they needed

  • so there were shortages and surpluses of resources

• mixed economy

• an economy where resources are allocated according to the laws of supply and demand and the government intervenes to eliminate market failure

• command economy

• an economy where the state owns all the resources and the government controls their allocation

• the preferred economy of Karl Marx

• command

• Karl Marx preferred command economies because…

• he believed that in a free market economy…

  • capitalists exploit workers

  • so the state should distribute the means of production between the workers

  • and become the central planner